A cruel reality of the war in Iraq: Fewer soldiers are dying but more are coming back missing arms and legs.
Bulletproofing gear, like that from Costa Mesa-based Ceradyne Inc., has helped soldiers survive daily mine, grenade and other insurgent attacks. Nearly 90% of injured soldiers are surviving attacks, a wartime record.
But the survival rate comes at a cost. The war is claiming more amputees than previous battles.
That’s spurring another bit of war business for Orange County.
Irvine’s Freedom Innovations Inc. and Ossur North America, an Aliso Viejo-based arm of Iceland’s Ossur HF, make prosthetic limbs for amputees.
The numbers from the war aren’t huge for Freedom and Ossur. But fitting injured soldiers with artificial limbs brings exposure to the companies’ everyday business, according to executives.
“The silver lining to all that heartbreak is an urgent need for innovation that in a way comes from the military and is driving technology in prosthetics,” said Eythor Bender, Ossur North America’s president, talking from Iceland last week. “It is driving benefits for all amputees.”
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Ossur’s Power Knee: company has yearly sales of about $240 million |
“All of the veterans who return, who’ve lost a limb are offered the ultimate in new technology,” said Maynard Carkhuff, Freedom’s president and chief operating officer, who once worked at Ossur. “So, while it has helped our business, the main benefit,that comes from these warriors’ return and having lost a limb and using new technology,is to showcase that technology for other amputees.”
The military amputees are getting “much more press and attention, and therefore, I think benefiting prosthetics as a whole,” Bender said.
One local soldier, Erick Castro, who studies medical engineering at Santa Ana Community College, was featured in a recent USA Today story about Iraq amputees.
Castro has a chip-controlled prosthesis that replaced his left leg, which was blasted from the hip in 2003 near Fallujah.
Ossur makes Power Knee, a motored prosthesis for above-the-knee amputees, and Rheo Knee, a bionic prosthesis for below the knee.
Freedom’s products include Renegade, a shock-absorbing prosthetic foot, and the Sierra line of artificial feet.
Small Market
Freedom and Ossur are in a small market without a dominant medical device giant. The big player is Germany’s Otto Bock Healthcare GMBH, which has its North American hub in Minneapolis.
“It is a very, very small industry,” Bender said.
Carkhuff declined to say what Freedom’s annual revenue is. It’s in the “eight-figure” range, he said.
Ossur is publicly traded in Iceland with yearly sales of about $240 million. In the quarter ended March 31, Ossur earned $4.1 million, up 30% from a year earlier, on sales of $60 million, which were up 93%.
Freedom, as the younger, smaller of the two, spends about 20% of its revenue on research and development, according to Carkhuff.
Ossur spends about 8% on research, Bender said.
There only are about 2,000 prosthetists, or medical professionals who fit and design the devices, he said.
“You can count maybe 10 companies” that make them, Bender said.
The Iraq war amputees are high profile but relatively small in numbers. Freedom’s Carkhuff estimates there are 400 soldier amputees from Iraq since the war started in 2003.
Other Amputees
Most other amputations stem from diabetes, trauma and cancer.
Ossur has gotten less than 5% of its business from the military, Bender said.
But “we slowly have been getting into that and learning to work with the military,” he said. “We were not a player a couple of years ago.”
Freedom, too, gets less than 5% of its business from the Veterans Administration and other military sources, Carkhuff said.
Working with soldiers takes time, the executives said.
The process includes fittings and a preliminary prosthesis prior to a patient’s transfer to Walter Reed Army Medical Center in Washington, D.C., or Brooke Army Medical Center in Fort Sam Houston, Texas. Those are the key military hospitals for soldier amputees.
Medicare makes up 30% of Freedom’s revenue with the rest coming from insurers and patients themselves.
The segment is like any other in the medical device industry, according to Carkhuff.
“There’s been downward pressure on all reimbursement of prosthetic devices,” he said. “Medicare used to be the lowest-priced reimbursement. Now Medicare is good reimbursement relative to the private payers.”
Insurers have asked those who work with prosthetics to price their products at 70% to 90% of Medicare rates, Carkhuff said. Reimbursement often is capped at $2,500 a year for a patient, he said.
“That’s where the clinician is experiencing business difficulties,” Carkhuff said.
Prices vary. At Freedom, prosthetic devices for below the knee are $5,000 to $7,500 for a complete prosthesis.
Above-the-knee devices are more expensive. They range from $9,000 for a simple prosthesis to as high as $60,000, said Shahr Lopatin, a prosthetist who is Freedom’s chief technical officer.
“A microprocessor knee will be about $60,000,” Lopatin said.
Ossur’s prosthetic components, Bender said, start at $200 to $300 and go up to more than $50,000 for its chip-controlled legs.
“Obviously, the higher you go, the bigger the challenge is on the reimbursement side,” Bender said.
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About the Companies
Freedom Innovations Inc. and the North American arm of Iceland’s Ossur HF make up a tag-team prosthetic sector in Orange County.
Ossur employs about 190 people in Aliso Viejo and Foothill Ranch. In January, Ossur bought Foothill Ranch-based Innovation Sports Inc. for $38.4 million.
The company does some manufacturing in Aliso Viejo and Foothill Ranch and has other U.S. facilities. In all, Ossur has some 650 U.S. workers.
Ossur’s decision to move some manufacturing from a contract plant in Fayette, Utah, led to Freedom’s creation, according to Maynard Carkhuff, Freedom’s president and chief operating officer.
The Utah facility stretches back to the days of Flex-Foot Inc., which Ossur bought in 2000. Flex-Foot, a maker of lower-limb prostheses, was started in 1985 in Laguna Hills. Carkhuff joined in 1986 and spent 14 years there prior to the Ossur buy.
Carkhuff, who held a stake in Flex-Foot, stayed on with Ossur for nearly two years, running its prosthetic division. He left in 2001.
He took a few years off, keeping busy with business groups the Life Science Industry Council and the Association for Corporate Growth.
“I should have been on the golf course,” Carkhuff said.
In 2005, he joined Freedom, after a non-compete deal with Ossur expired. Freedom, which was started with private funding, is in its fourth year.
Freedom employs 25 people locally and another 100 at its factory and research and development group in Utah.
The company isn’t looking to go public, according to Carkhuff.
“This business will remain private,” he said. “Most of the prosthetic device businesses are niche businesses. While they serve a major need in the marketplace, they are generally too small to really enter the public marketplace.”
Freedom and Ossur have different business models. Freedom sells to prosthetists.
“Each prosthetic device is prescription-required. We cannot sell to individuals,” said Shahr Lopatin, Freedom’s chief technical officer.
Ossur sells directly to hospitals and other institutions, including Walter Reed Army Medical Center and Brooke Army Medical Center.
Both companies say they’re in OC because of the area’s medical device companies and its pool of industry executives and workers.
,Vita Reed
